One of the challenges of being a mining company is the difficulty of attracting professionals capable of navigating complex financial circumstances. This is the reason some miners outsource their financial functions, according to Sanjay Swarup, CEO, SKS Business Services.
Swarup and Carrie James, head of SKS's business rescue division, recently sat down with Mining Journal to discuss how SKS assists mining companies.
Swarup noted that companies face challenges throughout their lifecycle.
"Initially, there will be an exploration company. The investors are looking to maximise the bang for their buck. They don't want the returns to be spent on an ivory tower in Mayfair. They want their money to go right into the ground," Swarup said.
"Come the feasibility study, again the investor wants maximum money to be invested in the project itself. Then it comes to development, (where it's) again the same story. Then they will start producing. The mine doesn't immediately start producing the nameplate capacity, and then there will be a financing round in the middle."
"All these things need complex expertise. That's something a company like SKS provides, because we have the experience of supporting these companies through these different lifecycles."
SKS began trading in 2009 and later that year it took on its first client in the mining sector, Mandalay Resources. As part of this assignment, Mandalay appointed Swarup as its chief financial officer. Swarup's first move was to secure a loan facility "before the company even needed money," he recalled.
"My experience had taught me that the mines going through this startup phase might falter. That's exactly what happened (with Mandalay)," he said.
"There was an earthquake in Japan. The smelter plant where the concentrate from Chile was imported to Japan stopped receiving those concentrates for three to four months. Rather than the mine (in Chile) being shut down, they continued production for those three to four months because we had that (loan) facility in place. When the smelter in Japan re-opened, we got the revenue and we were able to then take the advantage of the big surge in commodity prices in 2009-10."
Recently, SKS has helped both Consolidated Nickel Mines (CNM) and Rambler Metals & Mining recover from perilous financial situations.
CMN "was at a stage where it was becoming difficult to continue to trade and they were being impacted by local suppliers," James said.
"We very quickly arrived on site, spent time understanding and investigating the level of debt which in many ways was unclear to the shareholders. We took control and immediately provided them with support in terms of on-site and offshore finance functions. In addition, we prepared debt management plans… to get the suppliers on board so that the mine could continue to trade."
Rambler was experiencing financial difficulties after miscalculating some of its cashflow. With SKS's assistance, Rambler reached agreement with several creditors to enter repayment plans and reduce part of its debt. Shortly after, the company was able to raise around $13 million in equity financing and is now "on the verge of thriving," Swarup said.
In Swarup's opinion, the alternative to outsourcing financial functions would have been "a fire sale" of these businesses.
"It's fairly real how collaboration helps these companies," he concluded.
SKS Business Services is a full-service group of chartered accountants who have strong experience in the natural resource sector. They provide integrated support to organisations throughout their lifecycle from establishment to maturity, as well as those requiring restructuring to assist cash flow.
Key areas of assistance with clients are:
- Fundraising assistance including Financial Modelling
- Restructuring and Business Advisory services
- Finance function outsourcing with savings up to 50% over internal resource costs
- Providing interim Chief Financial Officers
*SKS runs the outsourced finance function for several global mining entities including Rambler Metals & Mining Plc, Consolidated Nickel Mines Ltd, Mandalay Resources, Black Dragon Gold. Please follow link to brochure for more information and contact details.